Online Travel agency Models.

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Online travel agency models

OTA acts as 24/7 appointed salesman for the hotel. It can be said that they are one stop solution for all hotel bookings for end customer.

1. Merchant Model

The main characteristic of a Merchant Model OTA is that OTA's purchase rooms in bulk due to the contract between OTA and hotels to sell base number of rooms.

In this case hotels give the OTA a net rate, to which a mark-up is applied to determine the sell rate to the end consumers. Generally the mark-up or margin for the OTA is determined by the agreement between the hotel and the OTA.

The guest pays the OTA at the time of booking a room, and the OTA afterwards pays the hotel when the actual stay occurs.

Examples of OTA's using merchant model are Expedia, Priceline, Agoda and Getaroom.com. On these websites the hotels obtain a preferred (direct) listing, and the hotel property is placed above product sources from other providers.

Beside the BAR (best available rate) Merchant Model OTA also offer additional promotional rate levels, for hotels to attract more demand. Examples are discounts for dynamic packages, allowing the OTA to bundle the hotel room together with a flight or car rental, creating competitive offers.

Advantages of Merchant model are:

1. Good bargain power due to bulk purchase leading to higher profit margin.

2. Can select rooms usually preferred by the guest.

3. OTA can package hotel with other offers such as flight/car.

Disadvantages of Merchant model are:

1. May not be preferred by hotel owner due to huge profit margins of OTA.

2. May need bulk investment if contract is prepay payment to hotel.

2. Agency Model- In this model, OTA's work on commission basis. Here the guest pays the hotel directly when the stay occurs and the hotel pays the OTA commission after the stay has taken place.

In this case a Hotel provides the OTA a final sell rate, over which a commission is paid to the OTA by the hotel after the booking at the hotel has been consumed. The commission level has been agreed upon prior in the distribution partnership agreement between the Hotel and OTA. ( generally from 15- 30 percent)

A key advantage of the Agency or commission OTA Model is that the Hotel sets the final sell rate directly. It will allow hotels to create a transparent price positioning to consumers, taking rate parity as a strategy into consideration.

The very well known example of agency model is Booking.com.

Advantages of Agency Model:

1. No upfront huge capital investment is required

2. Preferred by hotel owners due to more control over final selling price.

3. As its east to collaborate with many hotels, end customer gets wider choices.

Disadvantages of Agency Model:

1. It has less bargaining power for OTA.

2. It has less profit margins for OTA.

3. Its cannot be packaged with other offers.

3.Opaque Model: An Internet sales method in which consumers "bid" an amount they are willing to pay for a room on a specific arrival date and the third party: Web-site operator matches that bid with a hotel willing to sell a rooms) at that rate.

Opaque Sites are booking channels and OTA websites where the hotel remains hidden until after the purchase is complete. The customer sees only the product category (destination, star rating of the hotel) and the price but not the brand.

Usually it doesn't accept refunds, changes or cancellations.

It is basically a non-transparent discount offer. The sites are called opaque because the supplier remains hidden during the booking process.

This segment is popular in the travel industry. It is used to sell unsold hotel rooms, airline seats etc. The pricing strategy helps hotels to sell empty rooms without damaging their brand integrity and price positioning. It allows the hotel to reach out to a price conscious audience in addition to their usual target group. An advantage is the guaranteed revenue the hotel has, as the reservation can't be modified after purchase.

The best known Opaque Travel Websites are Priceline and Hotwire.

Many OTAs have also introduced their own version of Opaque Pricing:

Travelocity / Lastminute / Top Secret Hotels
Getaroom.com / Unpublished Rates
booking / Hidden hotel
GTAHotels.com / Mystery hotel
hotel.de / hotel Roulette
HotelsCombined.com / hotel Roulette
TravBuddy.com / hotel Roulette
Easyclicktravel.com / Off The Record
HotelDirect.co.uk / Hidden Gem/ Hotels
BookIt.com / Mystery hotel
SuperBreak.com / Mystery Hotels
Wotif.com / Wot hotel

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Online Travel agency Models.

1. Merchant Model

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